Semyon Dukach, the MIT Blackjack King, Takes SMTP Public in Latest Effort to Fight the Power

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An intriguing Boston-area tech company is going public after more than 10 years—and it’s not too late to shake things up in its market. I’m not talking about Zipcar (NASDAQ: ZIP), which had its long-awaited IPO a couple weeks ago. I’m talking about SMTP, a pioneering e-mail software firm based in Cambridge, MA.

Yes, the company with the famously boring name—it makes software for e-mail delivery management and marketing—is going public today. It’s not debuting on the Nasdaq or New York Stock Exchange; rather, trading of SMTP’s stock begins this morning on the over-the-counter bulletin board (OTCBB: SMTP). Companies that trade over the counter generally don’t have to meet the same SEC filing requirements as those that trade on the more regulated stock exchanges; it can also be harder for investors to trade OTC shares, partly because buyers and sellers must arrange their trades directly.

About two months ago, SMTP made an initial stock offering to 81 shareholders, who invested a total of $100,000 at 25 cents per share. The deal is different from a traditional, big-company IPO in that there is no investment bank involved as an underwriter—the offering went directly to a small pool of investors.

This isn’t your run-of-the-mill penny stock, though. SMTP says it doesn’t need the money, so it can afford to separate the process of going public from fundraising. The idea is that the firm could raise a few million in a secondary offering down the road—if its stock goes up—and in the meantime, it will keep growing and work towards becoming a much bigger player in e-mail tech. What’s more, its CEO has a contrarian’s sense of timing (and other important lessons to share), which we’ll get to in a minute.

SMTP, known as EMUmail until about a year ago, started in 1998 and first released its product for businesses in 2002. The company has grown a lot in the past year and has been making a small profit—just under $400,000 after tax in 2010, on $2.7 million in revenue. The firm had about 10,000 customers worldwide at the end of December. It says it competes with bigger companies like Constant Contact (NASDAQ: CTCT), JangoMail, MailChimp, and Amazon.com, which recently got into e-mail bulk delivery. SMTP currently employs 31 people, most of them in Ukraine; four are based in Cambridge.

“It’s small, but it’s solid, growing, and profitable,” says Semyon Dukach, SMTP’s chief executive (see photo, left). “Once we begin trading, we may very well go and raise a few million dollars in order to make acquisitions of related companies in our space.”

Indeed, anything seems possible when you have a guy like Dukach at the helm. While some might call him crazy (he wouldn’t deny it), Dukach has made a modest fortune thumbing his nose at the establishment. Most people know him as a swashbuckling master of disguise and leader of the MIT blackjack team, popularized in Ben Mezrich’s books Bringing Down the House and Busting Vegas. (He has the distinction of being the latter book’s main character.) But you might also say that Dukach, who is 42 and has five kids, has grown up a lot since then.

But we’re getting ahead of ourselves. Let’s go back to the beginning. Dukach is a Moscow native who came to the U.S. when he was 10, settling in Houston, TX, via Newark, NJ. He studied computer science at Columbia University and came to MIT in 1990 to do a master’s in electrical engineering and computer science. His thesis was on e-commerce and Internet money exchange (“way before it was cool,” he says).

Dukach got involved with the MIT blackjack team in the mid-1990s, and that story has been told. But it isn’t how he made his millions. That would be from his first software startup, … Next Page »

11 responses to “Semyon Dukach, the MIT Blackjack King, Takes SMTP Public in Latest Effort to Fight the Power”

I’m just wondering what idiot would invest in a company run by a guy that walked with millions, didn’t end up helping the world at all after he ‘retired’ (aka, couldn’t get any business model working, and failed trying a few times) and then goes outside for a promo photo shoot in a shaggy doo cap and a trendy puffy down jacket and jumps up a bit to show how he is the guy to believe in? Its pretty idiotic notion, and sadly there are a lot of bozos out there that will likely flip this clown some money.

An SMTP relay service can be a life saver to people whose ISP is blacklisted for being a spam haven. People in that predicament can’t send SMTP directly even if they have a static IP address (not in a dynamic subscriber range), and they can’t send using their ISP’s SMTP relays either because those are blacklisted.

However, SMTP relaying isn’t proprietary tech. I would be careful about investing in this. There is no intellectual property there. Anyone with a farm of Linux boxes can relay mail, and just a modicum of custom programming will get to the point of being able to meter it and bill customers.

The weakness in running a service like this is that it will attract spammers as well as legit users, so you have to run a “very clean ship” because if your servers are repeatedly blacklisted, your service is worthless. Nobody will pay, or continue to pay, to make vain attempts to send mail through a spam haven.

The business bet here is that A) there isn’t very much competition due to SMTP not being on people’s entrepreneurial radars, and B) that you can run this system better than anyone else, so that you become the number one choice for anyone who is not a spammer, but is not able to send mail directly or via their ISP.

A clear case of “The Emperor has no clothes.” SMTP.com does not compete with legitimate email messaging companies like MailChimp or Constant Contact – doing so does a disservice to these responsible providers.

Rather, SMTP.com offers email relay services, which spammers can supposedly use to fool ISPs into letting their emails through. ISPs, however, track bounce rates, spam complaint rates, and spamtraps across each email campaign and so SMTP’s service is not going to fool major ISPs that spend tens of millions thwarting spammers’ efforts. Moreover, since the only companies that would seek out an email relay service are spammers, SMTP’s servers end up with the worst clients and therefore the worst delivery rates possible.

There’s no sustainable business here. With the small revenues and “profits,” playing with a few numbers can make a money-losing operation look like it’s earning a profit.

Dukach’s history is one of self-promotion with little truth behind any of his statements or claims. Even this announcement of “going public” with 81 investors investing a total of only $100,000 is just another scam. I wonder how many of these people were Ukrainian-based or who put up the money for them. Bernie Madoff, anyone?

Best for anyone watching this to be very careful. This is a sucker’s bet.

I know penny stocks can be considered risky but you just need to do your research like any other stock. They do have the advantage of being cheaper and therefore more affordable to the small investor. I really like LSTG. The company recently got $15 million to continue exploration and development of their mines. It is estimated that they could be sitting on about $18 billion worth of gold and sliver. A lot of potential there!!